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[A]s noted over a week ago, European banks scrambled to obtain cheap dollars by borrowing over $50 billion from the Fed, and plug dollar shortfalls. Yet as all band aid measures designed to offset a broken liquidity equilibrium fail eventually, it was only a matter of time before we saw a direct bail out by the Fed of one or more banks in the aftermath of the November 30 global “bail out.” Sure enough, we have our first clue that “something” happened in the week ending Wednesday December 14 that involved an upgrade of the Fed’s indirect (and thus untargeted) bailout of global banks, to a focused, and very much targeted rescue of one (or more) banks. And with some additional diligence, it may be possible to narrow down the date of an actual bank bailout: Tuesday, December 13.
– ZeroHedge, “Did the Fed quietly bail out a bank on Tuesday?,” Dec. 17, 2011
The Foreign and Commonwealth Office and the Treasury is putting measures in place to help evacuate thousands of expatriates living in Spain and Portugal in case they are stranded no access to their savings. The two countries, which both have sizable British populations, were among those made vulnerable by the “sustained deterioration” in funding.
Spain was warned by credit rating agency Fitch that it was facing a debt downgrade along with Italy, while Ireland, Belgium, Slovenia and Cyprus were also given the warning.
– The Daily Telegraph, “Foreign Office plans evacuation of expatriates,” Dec. 18, 2011
Something is very rotten indeed in the city-state of Brussels. Last night, I had dinner with a friend of mine who works for a large bank in Europe. We talked a bit about the increasingly ominous state of the European financial situation, and he mentioned something rather worrisome. This week, his bank was holding a series of internal meetings to inform various financial services managers of the bank’s plans to respond to a serious financial event. My friend explained that this indicated the various scenarios have already been gamed out, and the bank is rapidly moving to prepare itself in case any of the more problematic scenarios turn out to accurately reflect the real world situation.
Of course, these preparations don’t mean that anything is going to happen today, tomorrow or evening next week. Boarded windows are not hurricane magnets. But they do indicate that a lot of very well-informed, very well-connected individuals are expecting something very bad to happen in the near future. When I asked my friend about his opinion, he said that he hoped nothing would happen until after Christmas, or better yet, until the New Year. I found this somewhat less than entirely reassuring.
Besides these various anecdotal observations, there are also some statistical suggestions that something is seriously amiss. Last week, the National Association of Realtors announced that on Dec. 21, it will release revisions to home sales for 2007 through the first 10 months 2011. Home sales will be revised downward, possibly by as much as 20 percent. NAR claims that this will not affect home prices, but that only raises some serious doubts about the legitimacy of the home prices reported, since lower demand would normally tend to indicate lower prices as well. Also, in the Federal Reserve’s most recent Z1 report for the third quarter of 2011, Federal debt increased $389 billion (4 percent from the previous quarter), reversing the trend of declining debt increases from the first part of the year. The last time there was a previous leap of this magnitude was in the first quarter of 2008.
Is it possible that the extent of the home revisions could trigger a bank failing or three? If so, how bad could it get? Apparently, rather worse than one would tend to imagine.
The Daily Telegraph disclosed last month that British embassies in the eurozone have been told to prepare emergency plans for the demise of the euro and the possible civil disorder that could follow. Senior ministers are increasingly convinced that the break-up of the single currency is a real possibility. Economists suggest that the failure of the euro could cause EU economies, including Britain’s, to shrink by up to eight per cent.
– The Daily Telegraph, “Eurozone crisis poses military risk,” Dec. 14, 2011
Unfortunately, with one exception, the Republican candidates for president don’t appear to be aware of any of this, as they are still blithely bickering about a whole host of political issues that are almost entirely irrelevant. Is there anyone so naïve as to believe that Newt Gingrich either knows the first thing about global financial crises or how to respond to one in a sane and sober manner? Is there any doubt that Mitt Romney will react to a financial crisis in exactly the same manner as George W. Bush, John McCain and Barack Obama, by sending billions of borrowed dollars to banks and other financial institutions and thereby exacerbating the peril? And can it reasonably be denied that the present situation is the very future of which Ron Paul has been attempting to warn Republicans for decades, in a manner that has been as courageous as it has been futile?
America can no longer afford petty narcissists and shallow showboats with executive hair at the helm, not if it expects to sail through the stormy financial seas ahead without going under. If Republicans still don’t have the good sense to turn to the one man who understands the historical occasion even with dire warning such as these, it will no longer be sufficient to describe them as the Stupid Party. We shall henceforth have to consider them the Insane Party.